Banking

Banking on the Banks

Trust in the banks has been at an all-time low. When we over-stretch ourselves, they turn us away – or charge us through the nose. But when they do it, governments go into over-drive to bail them out. It seems unfair but when the system collapsed everyone realised none of us can afford for them to go under. Why? Because our whole way of life revolves around them.

(To keep things simple here, we lump banks and building societies together as they offer similar services, the differences are more about whether they are owned by customers or private investors.)

THE QUIDS IN! BANKING GUIDE

Here is our brief guide to the basics for sorting out your banking options. At the bottom, in FFI, there are links For Further Information, depending what you want to know more about.

What Did The Banks Ever Do For Us?
Good question but there is a lot of pressure on banks to give a better deal to people on lower incomes. Love them or loathe them, we’re going to need them:

  • Benefits. The new benefits system for working age people, Universal Credit, will only pay into a bank (or credit union) account. As UC includes all benefits from Child Tax Credits to Housing Benefit, it’s worth having two accounts – one to keep money for rent and bills safe and one for day-to-day expenses (See Universal Credit)
  • Direct Debits. Energy firms already reward customers who pay by Direct Debit with lower charges. We have to ensure there’s enough in the bank to cover the bill but it’s one less thing to worry about. Landlords are likely to follow a similar route with Standing Orders, which are like Direct Debits but are for fixed amounts so you know where you are (FFI)
  • Phone Banking. We can arrange to check the bank balance by phone and call our banks to make payments or check transactions
  • Electronic Banking. The world is going online and soon everything from wages to benefit payments will be paid by electronic transfer. People who check their accounts online, using a PC or their mobile, are overdrawn less often
  • Shopping Online. Searching for bargains on the internet without leaving the armchair can mean cheaper shopping and this usually requires a debit or credit card (See Spending)
  • Savings. Stepchange debt charity says a nest egg of £1,000 will protect most people against most money crises. A good savings account will pay you interest but, again, it pays to shop around. (See Savings)
  • Basic Bank Accounts. The government had to step in to get these running right but the idea is everyone has a right to a bank account. People on low incomes, whatever their credit history, should be able to access one because BBAs do not allow us to get into debt. You just need some basic ID.

The Future

Bankers are very excited about the future but think technology is the answer to everything. What happens to friendly faces in local branches remains to be seen, although it’s not looking good for people who are not online:

  • Pre-Payment Cards. Services are coming onto the market where we take out a card, charge them up with regular payments and use them like a regular bank account. Direct Debits and online payments can be set up. They usually carry fees but could prove cheaper than going overdrawn or less hassle than falling into arrears with rent and bills
  • Phone Banking. A bit further along the road is the possibility of making payments and deposits, not with online banking on a smart phone, but by text!
  • No Free Banking. It seems time is up for so-called free banking, (except maybe for Basic Bank Accounts). Up until now, fee-free accounts have been paid for by other customers in debt. Will this mean cheaper services to those who are struggling? Probably too much to hope

The Alternatives

  • Building Societies. As ‘mutuals’, they are owned by those who have accounts with them. As they are run for the benefit of customers, not shareholders, they try to beat the banks on high interest for savers and low interest for borrowers
  • Credit Unions. These are usually local and much smaller but along the same lines as building societies. They often specialise in encouraging local people to save so they can later access short-term loans where mainstream lenders would either turn them down or charge huge fees (FFI)
  • Jam Jars. Well, not literally glass jars but some accounts, often run by Credit Unions, come with a jam jar function that we can tuck away money for rent and other bills. We spend the rest but money for important outgoings is safe. (Also known as ‘budgeting accounts’)
  • Post Office. This is wholly owned by the Government and offers a limited range of accounts and services, which may be useful to those who still don’t trust the banks, especially around savings. It does not offer good enough services to receive Universal Credit

FFI: Which Way Now?
Money Advice Service (MAS) has a series of online features to help people choose the right bank account and use different services. It always as simple as MAS makes it sound, so take note of what you’re entitled to. Read more

Basic Bank Accounts explained by MAS here. This explains what you are entitled to but Quids in! readers have told us they sometimes had to fight their corner to get one because banks would rather customers paid fees or get into debt, which is partly how they make money

Citizens Advice Bureau’s Financial Skills for Life training includes choosing and using a bank account. Click here

Money Skills gives a long list of options for someone struggling to provide proof of address acceptable to a bank. Click here